Apple is approaching $ 3 trillion. Why this might still be a top stock pick for 2022.

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An Apple store in Tampa.

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Apple

is one of the top stock picks for Morgan Stanley in 2022 as the tech giant approaches a market cap of $ 3 trillion and prepares to launch an augmented reality product.

“The combination of a strong and loyal customer base and the upcoming launch of AR / VR products positions AAPL for a reassessment in 2022,” analyst Katy Huberty wrote in a note Thursday. Huberty wrote that Apple was Morgan Stanley’s “preferred large-cap (and top overall pick)” until 2022.

Huberty’s call comes two days after she reiterated an overweight rating on Apple stocks (ticker: AAPL) and raised her price target 21% to $ 200 from $ 164.

Apple shares rose 0.2% to $ 175.47 on Thursday. The stock has risen about 32% this year, reaching a market cap of $ 2.87 trillion. Over the past month, it jumped 19%, outpacing the 0.5% rise in the Dow Jones Industrial Average, the 0.9% gain in the S&P 500 and the 0.04% advance in the Nasdaq Composite.

Morgan Stanley believes investors should value Apple as a mainstream and tech platform rather than a cyclical hardware company, given that about a third of gross profits come from the company’s services segment. Demand for the iPhone 13 will continue to drive short-term growth, with new product launches in early 2022 continuing the trend, Huberty wrote.

Dan Ives of Wedbush echoed Huberty’s bullish call, citing strong demand for the iPhone 13 and the upcoming launch of augmented reality headsets.

“This week’s audits of our Apple store, supply chain data and iPhone order delays all confirm our optimistic view that current demand exceeds supply of iPhones 13 by around 10 million. units around the world, “Ives wrote in a research note Thursday.

Ives estimated that Apple was set to sell more than 40 million iPhones during the holiday season, despite the chip shortage and supply chain headwinds. These headwinds are likely to be “nothing more than a speed bump” on the iPhone 12 and 13 cycle as consumers continue to upgrade their phones.

Ives also predicts that Apple will release an “Apple Glasses” AR headset around the summer of 2022, which could add $ 20 a share to the company’s valuation.

Other favorable winds include gaining a share of the PC market, strong cash returns and future advances in augmented reality, payments and discussions of an upcoming expansion in vehicle manufacturing, Huberty added.

“We also believe that investors need to properly integrate the value of the option of upcoming new product launches,” she wrote.

There are still risks for the bullish case of Apple stocks. Foremost among them is that iPhone sales do not materialize in 2022, as the demand for work from home falters, Huberty explained.

Another risk could come from weak growth in the services sector, potentially driven by court-imposed changes to the App Store payment model. Even that risk seemed less likely as Apple won yet another victory in its legal battle with publisher Fortnite Epic Games on Wednesday.

Write to Sabrina Escobar at sabrina.escobar@barrons.com


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